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The Sale of Medibank Private

March 24th, 2014 0 comments

Medibank Private, Australia’s biggest health fund, looks set to be privatised as part of a drive to sell off government-owned assets. It is thought that the sale amount could be in the region of $4 billion and would pave the way for more government assets to be sold off to raise funds.

The opposition spokeswoman has called on the Australian government to explain how the public will benefit from the move amid fears that it could lead to higher health insurance premiums for consumers. Although it’s unlikely, the Australian Medical Association is concerned that families will be forced to pay more for health insurance.

The Story So Far

A scoping survey was commissioned to advise the government on whether market conditions are right for a sale and to offer guidance on how best to go about this. Investment bank Lazard were appointed to do this and were given until the end of February to put together a scoping survey. According to Fairfax Media, Lazard are acting as corporate spin doctors and were brought on board at a rate of $2000 per day to start drawing up plans for full or partial privatisation.

The government was denied this but Finance Deputy Secretary, Jan Mason, has admitted to them hiring communications advisers in line with previous asset sell-offs. The appointment of Newgate Communications in this capacity is believed to signal strong intent to sell Medibank Private in the near future so that funds can be allocated elsewhere in Treasurer Joe Hockey’s May budget. The results of the scoping survey were expected to have been received at the end of February.

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Why It Is Happening

The sale of Medibank Private is believed to be part of a wider plan to raise funds that can be transferred into more important areas. These areas include paying off government debt or transferring funds into more important policy areas. For the moment though, the focus is solely on freeing up funds via the sale of the health fund. “We don’t have any plans to sell any Commonwealth assets of substance, other than Medibank Private,” Tony Abbott told Fairfax Radio in February 2014.

Defending the plans, Mr Abbott said: “It doesn’t seem to make much sense to lock up many billions of dollars in a government-owned insurer.” There is also concern in the Abott government that the government is conflicted by being both a regulator in the private health insurance market and a large market participant in the form of Medibank Private. Minister for Finance, Mathias Cormann, has argued that government withdrawal from market participation will benefit consumers with private health insurance.

What It Means for Consumers

The Australian Medical Association (AMA) has expressed concerns that commercial pressure and a reduced level of competition in the health insurance market could force premiums up. AMA President, Steve Hamberton, has warned that families could be hard hit. “The Government owning Medibank Private has kept costs down. We wonder whether it will actually decrease the amount of pressure on private health insurers to keep their prices down.”

Labor has claimed that the Abbott government will sell Medibank Private regardless of advice and without demonstrating how consumers could expect to be affected. Shadow Health spokeswoman, Catherine King, has urged the government to clarify how the sale will benefit the public and has questioned whether they are prepared to see health insurance premiums rise as a knock-on effect of selling up. She has also expressed disbelief at how the government have managed the build-up to the sale to date: “It is the role of the government to demonstrate why the sale of Medibank Private is in the public interest, not a team of external communications specialists paid $2000 per day.”

Hamberton is equally unhappy with the scoping survey: “We want information … The scoping survey should evaluate the impact on a competitive market and the potential for premiums to be affected. If … premiums go up, we’re not going to be happy because it’s in everyone’s interests to have as many people covered as possible.”

A report conducted by Essential Research with data from Your Source in October 2013 suggested that less than 25 per cent of Australians were in favour of privatisation. While this survey only canvassed 1,075 voters, it is an indication that the Australian public would prefer to have been consulted with regards to the sell-off plans.

The Abbott government has stressed the intention to sell off Medibank Private to free up funds that can be used elsewhere, although there is currently little detail on how this will impact on health insurance premiums. Both Labor and the Australian Medical Association have expressed concern that a sale will reduce competition in the health insurance market and increase premiums as a result. They have called on the government to explain the knock-on effects of privatisation to the Australian public before the sale goes ahead. One thing is for sure: with big changes afoot in the health insurance market, this is a great time to review your cover and shop around for the best deal.

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This article is opinion only and should not be taken as medical or financial advice. Check with a health and/or financial professional before making any decisions.